Summary of the announcement: The company announced its 2022 performance forecast. Net profit attributable to shareholders of listed companies is expected to be 67 million yuan to 87 million yuan, a year-on-year decrease of 71.49% to 62.98%; net profit after deducting non-recurring profit and loss is expected to be 45 million yuan to 65 million yuan, a year-on-year decrease of 78.25%-68.58%.

The pandemic has affected the pace of delivery, and external factors have affected the company's performance. Affected by epidemic prevention and control across the country, the company's new project progress and customer order delivery were delayed in 2022. The military tax exemption policy was abolished. The company confirmed tax deducted revenue based on prudential considerations. Multiple factors affected the company's normal performance. The median estimated annual net profit was 77 million yuan, a decrease of 67.24% over the previous year. On a quarterly basis, the fourth quarter is generally the peak period for company order confirmation. The epidemic disrupted the pace of delivery, and delivery of most projects was delayed. Q4 estimated net profit loss of 236-22.36 million yuan, with a median loss of 12.36 million yuan. With the optimization of epidemic prevention and control policies and the gradual resumption of related business and progress, we expect 22Q4 unconfirmed orders to be confirmed in the first half of 2023. Looking ahead to 2023, in addition to confirming the carry-over project, many of the company's new projects are progressing smoothly. On the one hand, the company uses existing mature product technology platforms to horizontally empower the new military, and on the other hand, the company is expanding vertically in terms of technology, laying out advanced products such as military 5G to consolidate its dominant position in the industry.

We expect that as we enter the second half of the 14th Five-Year Plan cycle, early related pre-research projects will enter the mass production stage. Combined with the current frequent global geopolitical friction and the urgent need for iterative upgrades of military communications, the company is expected to usher in a period of rapid growth.

Broadband military communications is a long-term trend, and the company is strengthening the integrated layout of the industrial chain. Our military's main combat equipment is mainly narrowband communication technology. In the long run, military broadband mobile communications are the future development direction, and national defense informatization continues to drive demand growth in the military broadband mobile communications market. There is a big gap between China's military communication system and developed countries. Compared with developed countries' investment in military communication system construction, which accounts for 5% of national defense spending, China's military communication system construction expenditure only accounts for less than 2% of defense spending, so there is plenty of room for improvement. As an overall technical unit, the company participated in the development of “a general equipment model development project for military broadband mobile communication systems”. The main products include military 4G/5G tactical communication equipment. The products cover broadband communication chips, communication modules, terminals, base stations, application systems, etc., to form a “chip-module-terminal-base station-system” industry chain layout in the 5G era. The company has finalized and developed a total of 38 types of equipment. The company's new products continue to expand into multiple military types in many fields. The products cover military forces such as land, sea, air, rocket, and strategic military support Type, product order Continued dosage. In the field of military broadband mobile communications, the company is in a leading position in terms of technical reserves, commercialization capabilities, number of models and equipment, and market share.

Technical capabilities continue to lead, creating a second growth curve for small base stations. The company insists on technology as the foundation of development, maintains high investment in R&D, continues to absorb outstanding talents in the industry, optimizes its product performance through the improvement of technical capabilities, and guarantees its leading position in military broadband. As of the third quarter of 2022, the company's research projects include broadband and narrowband-compatible wireless communication systems based on the SDR platform, wireless broadband communication products for equipment platforms, communication support products suitable for large-scale applications, military expansion model products, comprehensive integration projects for infrastructure communication construction in training grounds, next-generation access waveforms and ad hoc network waveforms, and 5G products based on military requirements. In addition to military use, the company's small base stations have made breakthroughs in the civilian field. The operator opened a tender for small base stations. Among them, China Mobile announced the results of the 2022-2023 extended terminal equipment tender. The total amount for 20,000 stations was about 1.3 billion yuan. The company's 5G small base station has successfully obtained a network access certificate and model approval certificate from the Ministry of Industry and Information Technology, and completed the development of a first-generation integrated station principle prototype. The company's small base station products are highly autonomous and controllable, and in the future, products will be batched according to market customization requirements.

Investment suggestions: Defense informatization will be an important direction for military spending. With the modernization of military equipment, it will promote the upgrading of military communications from narrowband to broadband. The military broadband communications market will usher in rapid growth, and the company is expected to fully benefit. At the same time, the small base station business is expected to enter the early stages of expansion. Based on the impact of the epidemic on the company's delivery pace, we adjusted our profit forecast. We expect the company's net profit for 2022-2024 to be 80 million yuan/333 million yuan/416 million yuan (original value was 312 million yuan/388 million yuan/469 million yuan), and EPS was 0.13 yuan/0.53 yuan/0.66 yuan respectively, maintaining the “buy” rating.

Risk warning: Military broadband market development falls short of expectations; risk of increased market competition